Question 1

Congress allows self-employed taxpayers to deduct the cost of health insurance above the line (for AGI) because:

Accepted Answer

A)  employers are allowed to deduct social security (FIC
A)  taxes as a business expense. 
B)  self-employed taxpayers need an alternate mechanism for reducing the cost of health care. 
C)  this deduction provides a measure of equity between employees and the self-employed. 
D)  health insurance premiums cannot be deducted otherwise. 
E)  None of the above

Question 2

Last year Henry borrowed $15,000 to help pay for his dependent daughter's college tuition. This year Henry paid $2,800 of interest on the loan. How much, if any, interest can Henry deduct if he files single with AGI of $72,500?

Accepted Answer

The answer of Last year Henry borrowed $15,000 to help...

Question 3

Brady owns a second home that he rents to others. During the year, he used the second home for 50 days for personal use and for 100 days for rental use. Brady collected $20,000 of rental receipts during the year. Brady allocated $7,000 of interest expense and property taxes, $10,000 of other expenses, and $4,000 of depreciation expense to the rental use. What is Brady's net income from the property and what type and amount of expenses will he carryforward to next year, if any?

Accepted Answer

A)  $0 net income. $1,000 depreciation expense carried forward to next year. 
B)  ($1,000) net loss. $0 expenses carried over to next year. 
C)  $0 net income. $1,000 of other expense carried over to next year. 
D)  $0 net income. $1,000 of interest expense and property taxes carried over to next year.

Question 4

Rental or royalty expenses are deductible "for" AGI.

Accepted Answer

A) True 
 B)False

Question 5

This year, Jong paid $3,000 of interest on a qualified education loan. Jong files married filing joint and reports modified AGI of $142,000. What is Jong's deduction for interest expense on an educational loan?

Accepted Answer

A)  $2,500 
B)  $3,000 
C)  $1,500 
D)  $1,000 
E)  None of the above.

Question 6

This fall Marsha and Jeff paid $5,000 for their son Josh's tuition and fees at State University (a qualified education institution). They also paid $1,000 for Josh's books. How much of these two payments can Marsha and Jeff deduct this year, assuming Josh is their dependent and their modified AGI is $135,000?

Accepted Answer

A)  Marsha and Jeff can deduct $5,000 for AGI. 
B)  Marsha and Jeff can deduct $4,000 for AGI. 
C)  Marsha and Jeff can deduct $2,500 for AGI. 
D)  Marsha and Jeff can deduct $2,000 for AGI. 
E)  None - the tuition is not deductible.

Question 7

Qualifying distributions from traditional IRAs are nontaxable while qualifying distributions from Roth IRAs are fully taxable as ordinary income.

Accepted Answer

A) True 
 B)False

Question 8

Bryan, who is 45 years old, had some surprise medical expenses during the year. To pay for these expenses (which were claimed as itemized deductions on his tax return), he received a $20,000 distribution from his traditional IRA (he has only made deductible contributions to the IRA). Assuming his marginal ordinary income tax rate is 15%, what amount of taxes and/or early distribution penalties will Bryan be required to pay on this distribution?

Accepted Answer

A)  $3,000 income tax; $2,000 early distribution penalty 
B)  $3,000 income tax; $0 early distribution penalty 
C)  $0 income tax; $2,000 early distribution penalty 
D)  $0 income tax; $0 early distribution penalty

Question 9

Casey currently commutes 35 miles to work in the city. He is considering a new assignment in the suburbs on the other side of the city that would increase his commute considerably. He would like to accept the assignment, but he thinks it might require that he move to the other side of the city. Which of the following is a true statement?

Accepted Answer

A)  Casey can deduct moving expenses if the distance between his current residence and his new assignment is at least 50 miles. 
B)  If Casey's move qualifies for the moving expense deduction, he can deduct the cost of meals while en route to his new residence. 
C)  To qualify for a moving expense deduction the new commute from Casey's current residence would need to be a minimum of 85 miles. 
D)  If Casey's move qualifies for the moving expense deduction, he can deduct half the cost of meals while en route to his new residence. 
E)  All of the above are false.

Question 10

Judy, a single individual, reports the following items of income and loss: $$\begin{array} { | l | r | } 
\hline \text { Salary } & \$ 120,000 \
\hline \text { Loss from rental property } & ( 40,000 ) \
\hline
\end{array}$$ Judy owns 100% of the rental property and actively participates in the rental of the property. Calculate Judy's AGI.

Accepted Answer

The answer of Judy, a single individual, reports the following...

Question 11

A SEP IRA is an example of a self-employed retirement account.

Accepted Answer

A) True 
 B)False

Question 12

Qualified education expenses for purposes of the deduction of interest on educational loans are expenses paid for the education of the taxpayer, the taxpayer's spouse, or a taxpayer's dependent to attend a post-secondary institution of higher education.

Accepted Answer

A) True 
 B)False

Question 13

When allocating expenses of a vacation home between personal use and rental use, the amount of depreciation expense allocated to the rental use is always the ratio of rental days over rental days plus personal use days.

Accepted Answer

A) True 
 B)False

Question 14

In general, total deductible home office expenses are limited to the gross income derived from the business minus business expenses unrelated to the home. (this is net Schedule C income before home office expenses.)

Accepted Answer

A) True 
 B)False

Question 15

This fall Manfred enrolled in the law school at State University (a qualified educational institution) and paid $6,200 in tuition. Until his enrollment, Manfred worked as a stock broker and this year he reports $70,000 in wages. If Manfred files single and reports no other items of income or expense how much of the tuition can he deduct as a business expense?

Accepted Answer

A)  Manfred can deduct half of his tuition for AGI. 
B)  Manfred can deduct half of his tuition as a miscellaneous itemized deduction. 
C)  Manfred can deduct $6,200 for AGI. 
D)  Manfred can deduct $6,200 as a miscellaneous itemized deduction. 
E)  None - the tuition is not deductible as a business expense.

Question 16

Jamison is self-employed and he works out of an office in his home. After allocating the home-related expenses between the business office and the rest of the home, which of the following statements regarding the sequence of deductibility of the expenses allocated to the home office business use is correct?

Accepted Answer

A)  Depreciation expense, other expenses, property taxes and interest expense 
B)  Other expenses, depreciation expense, property taxes and interest expense 
C)  Property taxes and interest expense, depreciation expense, other expenses 
D)  Other expenses, property taxes and interest expense, depreciation expense 
E)  None of the above statements is correct.

Question 17

Katy owns a second home. During 2016, she used the home for 20 personal use days and 50 rental days. Katy allocates expenses associated with the home between rental use and personal use. Katy did not incur any expenses to obtain tenants. Which of the following statements is correct regarding the tax treatment of Katy's income and expenses from the home?

Accepted Answer

A)  Katy includes the rental receipts in gross income and deducts the expenses allocated to the rental use of the home for AGI. 
B)  Katy deducts from AGI interest expense and property taxes associated with the home not allocated to the rental use of the home. 
C)  Assuming Katy's rental receipts exceed the interest expense and property taxes allocated to the rental use, Katy's deductible expenses for 2016 may not exceed the amount of her rental receipts (she may not report a loss from the rental property). 
D)  All of the above statements are correct.

Question 18

Mason paid $4,100 of interest on a loan that paid tuition for him to attend a private university this year. How much of this payment can Mason deduct as interest expense on an educational loan if he files single and reports modified AGI of $90,000?

Accepted Answer

A)  $4,100 
B)  $4,000 
C)  $2,667 
D)  $2,000 
E)  None of the above.

Question 19

A loss from a passive activity is fully deductible as long as the taxpayer has sufficient tax basis in the activity.

Accepted Answer

A) True 
 B)False

Question 20

Mercury is self-employed and she uses a room in her home as her principal place of business. She meets clients there and doesn't use the room for any other purpose. The size of her home office is 400 square feet. The size of her entire home is 2,400 square feet. During the year, Mercury received $6,300 of gross income from her business activities and she reported $2,500 of business expenses unrelated to her home office. For her entire home in the current year, she reported $3,500 of mortgage interest, $1,000 of property taxes, $600 of insurance, $500 of utilities and other operating expenses, and $3,200 of depreciation expense. What amount of home office expenses is Mercury allowed to deduct in 2016? Indicate that amount and type of expenses she must carry over to the next year, if any.

Accepted Answer

The answer of Mercury is self-employed and she uses a...

Exam 6: Individual for Agi Deductions

Congress allows self-employed taxpayers to deduct the cost of health insurance above the line (for AGI) because:

Last year Henry borrowed $15,000 to help pay for his dependent daughter's college tuition. This year Henry paid $2,800 of interest on the loan. How much, if any, interest can Henry deduct if he files single with AGI of $72,500?

Rental or royalty expenses are deductible "for" AGI.

This year, Jong paid $3,000 of interest on a qualified education loan. Jong files married filing joint and reports modified AGI of $142,000. What is Jong's deduction for interest expense on an educational loan?

Qualifying distributions from traditional IRAs are nontaxable while qualifying distributions from Roth IRAs are fully taxable as ordinary income.

A SEP IRA is an example of a self-employed retirement account.

Qualified education expenses for purposes of the deduction of interest on educational loans are expenses paid for the education of the taxpayer, the taxpayer's spouse, or a taxpayer's dependent to attend a post-secondary institution of higher education.

When allocating expenses of a vacation home between personal use and rental use, the amount of depreciation expense allocated to the rental use is always the ratio of rental days over rental days plus personal use days.

In general, total deductible home office expenses are limited to the gross income derived from the business minus business expenses unrelated to the home. (this is net Schedule C income before home office expenses.)

Mason paid $4,100 of interest on a loan that paid tuition for him to attend a private university this year. How much of this payment can Mason deduct as interest expense on an educational loan if he files single and reports modified AGI of $90,000?

A loss from a passive activity is fully deductible as long as the taxpayer has sufficient tax basis in the activity.